Tenants in common

florence220

Yes I have done a separation of tenancy, which I am thinking is the same as you have written about. Yes it works but when my partner died I am having to do Probate as the property is still registed in both our names and therefore I am unable to sell the property. Still think it was worth it so that if it came to it only half the house would have got eaten up with care home fees.

My husband did have Alzhemiers but because initially he was under Section 117 of the Mental Health Act owing to the fact he tried to get out of the home and had a temper. This meant that Care Home Fees were paid by the Authority.

Hope this helps

shimmasok

The 7 Year Rule people are mentionning is most likely a reference to what are known as Potentially exempt Transfers (PETS). This states that you may gift away any land or money and, in the event that you survive 7 years, no IHT needs to be paid on that amount. Normally you can only make gifts of £3000 a year (plus other smaller and wedding gifts) and not have to pay IHT on them. Also you may carry this forward for one year only, i.e. £6000 every two years.

However, this will not count if what you have given is a gift with reservation. Therefore if you "give" your house to your children but continue to live in it then this doesn't count as a PET because you have retained some benefit. This is the same if you give away a diamond ring but continue to wear it or a painting which you keep hanging in your house.

To successfully give away the house during your lifeime you would have to pay your children full market rent to avoid a IHT payment on death.


Now to you Tenants in Common haters, Trusts are not all complicated or evil. Tenants in common is a great way of avoiding IHT if you own a house with your partner and both want it to go to the kids eventually.

Example:

If your house is worth £400,000, as joint tenants this passes to your spouse automatically. When the second person dies the will pay 40% inheritance tax on £100,000 (£300k being the current tax free threshold) plus 40% on all of your savings.

If however when the first person died as a tenant in common they passed their £200,000 to the children in a trust which stated that the partner could live in the house as long as they wished or until they died (so no family problems and no shortage of funds) then no inheritance tax is paid when the first person dies because 200k is below the threshold and no inheritance tax is paid when the second person dies because again they are only passing 200,000. Therefore a tax saving of a minimum of £40,000!!! On top of that if the survivor does go in to long term care only £200k can be taken and the children have £200k safely locked up in the house!! Now if you are telling me spending around £300-400 for a solicitor to make a will and simple trust that achieves a £40,000 minimum saving is a bad idea then you are no money saving expert!

margaretclare

Now to you Tenants in Common haters, Trusts are not all complicated or evil. Tenants in common is a great way of avoiding IHT if you own a house with your partner and both want it to go to the kids eventually.

I didn't say that I 'hated' it. I said that DH and I had decided we didn't want to do it. We like the idea that we both own 100% of the same property. And we don't want it to 'go to the kids eventually'! All three 'kids' - his son and daughter, and my daughter, have their own homes and don't need ours as well. Whatever is left is going to the 5 grandchildren - his and mine - after we've had all possible use out of it.

Margaret

EdInvestor

shimmasok wrote: »

To successfully give away the house during your lifeime you would have to pay your children full market rent to avoid a IHT payment on death.

However it should perhaps be pointed out that your kid(s) will have to pay income tax on the rent ( will it push them into the higher rate band?) and capital gains tax on the profit when they eventually sell the house after you die. Although it is possible to reduce the CGT payable, unless the parent's estate is quite considerably larger than the 300k nil rate band, it's worth sitting down and doing the math on this.The overall net saving, if any, may be not worth the trouble - particularly to the parent, who incurs a number of quite serious risks by following this course of action.

Willman_Rodders

shimmasok said ....
If however when the first person died as a tenant in common they passed their £200,000 to the children in a trust which stated that the partner could live in the house as long as they wished or until they died (so no family problems and no shortage of funds) then no inheritance tax is paid when the first person dies because 200k is below the threshold and no inheritance tax is paid when the second person dies because again they are only passing 200,000. Therefore a tax saving of a minimum of £40,000!!! On top of that if the survivor does go in to long term care only £200k can be taken and the children have £200k safely locked up in the house!!

My comment ...
So which type of trust are you using? Your text - 'a trust which stated that the partner could live in the house as long as they wished or until they died' -implies an Interest in Possession Trust (also known as a life interest trust). The tax situation with this type of trust created before the 22nd March 2006 is that the beneficial interest is included within the value of their estate for IHT purposes. So there is no IHT saving whatsoever! For IIP trusts created after the 22nd March 2006 the trust fund will be subject to the same tax treatment as a discretionary trust (i.e. 10 yearly tax charges of 6% of fund value, and exit charges.) The IIP is however effective for protecting 50% of the property from being sold to fund long term care.

If your trust is a discretionary trust - which allows the trustees to use the funds at their discretion - then this does make use of the Nil Rate Band Allowance and can save up to a potential £120,000 of inheritance tax. These trusts however are not so effective at protecting the property from being sold to fund Long Term Care.

You can see that neither trust offers full protection from IHT AND Long term Care funding.

Further, both trusts involve an element of risk. If you talk to solicitors - as I do, or visit other web sites (MargaretClaire has posted 'Help the Aged' as one I recall) you will realise that this simple scenario of saving tax is not so simple in reality.

Firstly, many advisers in the past have misunderstood which trust works and which one does not.

Secondly, where you have a discretionary trust the trustees have complete discretion. Full stop. End. You can set out your wishes as to how you would ideally like the trust to be run in an 'expression of Wish' but if you do not give your trustees complete discretion to run the trust as they see best then you are not creating a discretionary trust, but an interest in possession trust - and your IHT planning fails.

To be effective (against the 'Gifts with Reservation' rules) a discretionary trusts works by either lending back the half share of the property to the surviving spouse by way of an IOU, or by registering a charge at the land registry of the loan. If the trustees have complete discretion they can call in the loan at any time. And some trustees do just that, forcing the surviving spouse into a smaller property and financial hardship.

Further complications exist in the composition of the trust fund. Any experienced financial adviser will advise a client not to have all their investments in one category of investment but to spread the funds into three, maybe four categories - cash, fixed interest, equity, and property. Yet many discretionary trusts, created from people's testamentory wills by the method you suggest, comprise 100% property. How does that stand up against the responsibilities contained within the Trustee Act 2000, which also states trustees must seek professional advice for the investment of funds?

Further, year on year tax returns will be required on the trust; failure to submit the return on time on time and you will face the standard late penalty fees charged by Customs and Revenue. Trustees must meet at least annually, and the meeting must be documented; the Customs and Revenue will challenge any trusts where these meeting are not held correctly - arguing that the trust is nothing more than a sham. The meeting must comply with the Trustee Act regarding the level of investment experience for the trustees - so you may need to have a solicitor or IFA involved - yet more cost. All discretionary trusts face a 10-year tax charge of 6%, and exit charges. Not alot eh? If you are on a low income finding the 6% tax charge on £300,000 can financially cripple an elderly person.

If you have an interest in possession trust there will be terms and conditions of tenure. Usually one is that the 'property must be maintained to a reasonable standard'. What is 'reasonable standard'? Again [unscrupulous]trustees, eager to get their hands on their inheritance and who see an elderly relative as a mere blockage to their inheritance, can argue that the house is not maintained to a reasonable standard and therefore the occupant is in breach of the trust conditions and ... yes you've guessed it; the elderley resident suddenly finds themselves being forced to downsize to a property half the value of their original home - often leading to an unhappy final years of life.


Now I accept what is complicated for one person, is often a 'walk in the park' for a specialist; but I find many solicitors and advisors struggle to get to grips with trusts, and their taxation - but they know their shortcomings. I also find many people feel they can advise on many topics with only the minamilist of technical knowledge - they talk authoritively but it is only when their advise is tested (and with a will this is on the death of someone) does this lack of knowledge come to light - at the expense of the person who trusted the adviser in the first place.

I have many reference books, some two inches wide, just explaining about trusts, and despite having speant many years reading up on, and being tested upon trusts and tax I still find them testing topics.

My advice to shimmasok, and anyone else who thinks .....
'Trusts are not all complicated or evil. Tenants in common is a great way of avoiding IHT if you own a house with your partner and both want it to go to the kids eventually.'

is to be aware of the benefits and the significant risks to your surviving spouse of including these risks in your will. If your adviser explains these to you, and in particular the risks, so that you can make an informed judgement, excellent. If the adviser takes the line that it is 'all roses and light' - but fails to mention the significant downside - then my advice is walk away from the adviser and find someone who will give you such advice.

margaretclare

Thank you, Rod. You've refuted what shimmasok wrote 'that trusts are not at all complicated'. Not complicated - Byzantine is more accurate! And 'not evil' - maybe not 'evil' in themselves, but capable of evil interpretation by others who stand to benefit and would like to benefit now rather than later.

To all those who own a house and who want it to go to 'the kids' eventually - assuming 'kids' is plural i.e. more than one, do you want them scrapping over their share after you've gone, or worse, before you've gone? I once heard of a house which was literally chopped in half by an aggrieved husband - 'you wanted half as part of the divorce settlement - which half do you want, the left or the right half?'

Margaret

home_alone

margaretclare wrote: »

To all those who own a house and who want it to go to 'the kids' eventually - assuming 'kids' is plural i.e. more than one, do you want them scrapping over their share after you've gone, or worse, before you've gone? I once heard of a house which was literally chopped in half by an aggrieved husband - 'you wanted half as part of the divorce settlement - which half do you want, the left or the right half?'

Margaret

Yes I want my (our) house to go to the kids why not, you have taken a worst case scenario, I would like to believe that my kids can come to some agreement when we have gone. I have advised them to sell and half the proceeds. We have always made sure that each of our two get more or less the same gifts etc, its a much easier life that way.

gary

oap

Oh my goodness me, it is finding a good financial adviser then, or a Solicitor who deals in Trusts alone.?
When I was 13 just after the war my parents split up, and the house was put in trust for me in 1949, my mum died at the age of 92 some years ago, and there was absolutely no problem with inheriting a very small bungalow which at the time was not worth what they are now, no capital gains to pay on the value of the ubngalow, nothing as she did not have any capital , however, it was hers for life and she paid all the bills on it and expenses, and during my father's lifetime two of his friends were trustees, who passed on, he then made my husband and myself trustees before he died, my mum could have moved house, but she would have to ask us and did ask us for permission and we did it all for her. She was not the guilty party in the divorce and he paid her maintenance.The trust apparently was to stop her remarrying and someone taking the house off her!! Times have changed now.

We had thought of doing a trust for our son similar to this, as believe me without the bit of money I got for the bungalow, we would have been in dire straits now with our income. We have one grandson, but we would want our son to benefit in his retirement as you never know these days what is round the corner.

When we went into this, the government Mr Brown had stopped it being done, so hence our friend's advice to do the tenants in common, and here we are, you have all been so helpful, but although we are very good at managing our money, it is way beyond us what to do now. Our son is 43.

I am going to print off the whole of this thread, and plod through the lot and try and glean from all the marvellous information what to do next.

Best wishes and thank you, thank you all, off to watch Man Utd this pm on the box for hopefully a bit of light entertainment!!! Regards oap

seven-day-weekend

We only have one son (27); he is single, has no children and may never have; he is not in a position to have his own home. Who is going to inherit our house if he doesn't? We would like him to have it! What's wrong with that? And what is wrong with trying to protect it for him as much as we can?

I don't think we can say that tenants-in-common is wrong for everybody, or that people shouldn't want to leave it to their children, or care what happens to their property. It is OUR house, all paid for; if we want to give it to our son then why the heck shouldn't we, it will be and should be our choice!

One thing I do know, if my husband died I would keep the house in my name even if I remarried, or possibly mine and my son's, - I would not want someone else's family to benefit from what my husband and I built up and what by right should go to our son or his family. I know Margaret Clare has made a different decision, that is entirely her right, but I don't think we should make blanket decisions on this - what is right for one family is definitely not right for all.

I repeat, IMHO there is absolutely nothing wrong in wanting your children to have your house and if you are prepared to take the associated risks then why the heck shouldn't you?

elliebean_2

Willman_Rodders wrote: »

If your trust is a discretionary trust - which allows the trustees to use the funds at their discretion - then this does make use of the Nil Rate Band Allowance and can save up to a potential £120,000 of inheritance tax. These trusts however are not so effective at protecting the property from being sold to fund Long Term Care.

Can you explain why you see Nil Rate Band Discretionary Trusts as being ineffective at protecting property from LTC fees please?